Gold looks on track to test its January high ($1959) after winning its February high of $1872 in May, but fresh US economic data appear to be putting pressure on precious metals, as the May ISM manufacturing survey was 61.2, compared with a forecast of 60.9. In response, Chris Williamson, chief business economist at market research firm IHSMARKIT, said that the US manufacturing sector performed well in the second quarter, with PMI hitting a new high for the second month in a row in May. New order inflows are rising at the highest rate in 14-year survey history, driven by a recovery in domestic demand and record export sales. Pent-up demand due to the reopening of the economy boosted orders and contributed to a rebound in US manufacturing activity in May. However, raw materials and labour remain in short supply, factory inventories have barely grown, and commercial warehouses are worrisome.

Spot gold fell slightly in Asia on Wednesday, trading around 1898. Strong US manufacturing data and a stronger dollar have undermined gold's attractiveness. In addition, the Fed's excessive leniency policy has led to another decline in the federal funds rate, while reverse repo demand has risen sharply. All this suggests that the Fed may struggle to manage both interest rates and bond purchases, which is extremely bad for gold prices.

However, the rising SPDR position is a strong support for the rise in gold prices, and the Fed should maintain its current policy for some time. However, according to the monitoring data of the world's eight major gold ETF, as of June 1, 2021, the total position of the world's eight largest gold ETFs was 1850.327 tons, an increase of 3.68tons from the previous trading day. ETF-SPDR Gold Trust, the world's largest gold, held 1045.83 tons of gold, up 2.62 tons from the previous day. Gold's May rally was accompanied by strong ETF purchases, with a total of 49 tons in May, Commerzbank analyst Carsten Fritsch said, citing data. This is the first month of net inflows since January and the largest one-month inflows since September 2020. Given the expected high inflation in the coming months and the resulting significant negative real interest rates, demand from ETF investors should remain high, which is good for gold.

Looking ahead, the non-farm payrolls report (NFP) is likely to affect gold's short-term outlook as it is expected to show an increase of 664000 in May, up from 226000 the previous month, while the unemployment rate is expected to shrink from 6.1 per cent to 5.9 per cent over the same period. As a result, signs of a stronger labour market are likely to dampen the attractiveness of gold, as it will encourage the Fed to scale back its dovish forward guidance on monetary policy.

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